This is the official blog for fine wine merchant Capital Vintners. Check out our website www.capitalvintners.com for more information

Tuesday, January 22, 2013

Capital Vintners Special Report: Fine Wine and China

In 2008 the fine wine market was affected by a
single piece of legislation in Hong Kong to such an extent that the small
island off the coast of China is now, after only four years, Bordeaux’s number
one export market.

The duty on fine wine was reduced from 40 to 0 per
cent and Hong Kong instantly got the bug for fine wine consumption and
investment. In 2010 the Liv-ex 100 rose by 40 per cent, compared to the FTSE’s
9 per cent increase. Most analysts put this huge increase largely down to this
reduction in duty-related customs in China.

Arguably the most famous wine in the world – Lafite
Rothschild – saw a rise in value of the majority of its vintages by 70-100 per
cent in 2010, as Chinese palates fell in love with the fantastic Bordeaux First
Growth.

Since then the Chinese market has rapidly
diversified, as investors come to realise there is more to France than just a
tiny section of the Bordeaux region. The First Growths remain the ultimate
investment opportunity, but many other French regions and chateaux are now
highly desirable. Wines from Burgundy, Côtes du Rhone and Champagne are now all
sought-after in Asia.

As a gateway to mainland China, Hong Kong not only
has a huge geographical advantage, but it has also entered into an agreement
with China to allow wine to be transported to the mainland under enhanced
customs regulations, known as the Mainland and Hong Kong Closer Economic
Partnership Arrangement (CEPA).

As the market grows and diversifies, investors are
starting to look to the ‘lesser’ known wines. Chinese portfolios have become
more advanced as more people have more access to knowledge on the market.

Demand
Outstripping Supply

The Premier Cru wines – Lafite, Latour, Margaux,
Haut-Brion and Mouton – only produce around 180,000 bottles a year. Bearing
this tiny supply in mind, a nation of well over one billion people will
dramatically push up the demand for the top wines. With such a large potential
market, wine companies and distributors have flocked to Asia to take advantage
of the rapid increase in consumption and investment.

Asian buyers now account for 60 per cent of
Sotheby’s global wine sales. One example of this extraordinary boom in fine
wine sales was the Lafite 2009, which sold for £43,000 a case in Hong Kong,
three times the London price. Wine auctions in Hong Kong regularly break
records, with cases of top wines going for £30,000+.

The
Asian Connection

Business relationships between Europe and Asia are
being formed all the time. In November 2012 the first chateau with Grand Cru
Classé status – Bellefont-Belcier – was bought by a Chinese businessman. This
is a clear indication that the Chinese influence over the fine wine market will
only increase in the coming years.

Robert Parker’s infamous journal, the Wine
Advocate, is opening up a large office in Singapore. Parker is due to step down
as editor soon, and will be replaced by his Singapore-based Asia correspondent,
Lisa Perrotti-Brown. This is yet another signifier of the change in focus in the
global wine market towards the East. Emerging nations with growing middle
classes with Western ideals will flock to fine wine, seen as one of most prized
status symbols.